Abstract
Entrepreneurs may pursue a franchise with a proven model or try to do their startup idea. Franchisees are more successful than new businesses. Independent firms make changes and decisions as they go, while franchises follow a business strategy that has already proven successful. There are many unknowns when starting a business, but entrepreneurs have support from the outset when they invest in a franchise. A franchise system reduces uncertainty by providing a proven business framework and a safety net in case something goes wrong.
Franchises have a better track record of success than new businesses. Entrepreneurs are backed by an established network when they launch a franchise from day one. Startups carry a higher degree of risk than franchises do. The franchise model has a far lower risk of failure. Franchisors’ primary objective in establishing franchises is to preserve the integrity of the franchisees’ respective brands utilizing consistent assistance. There are a variety of paths one can take when starting a business. Entrepreneurs can launch a brand-new company from scratch or buy an established franchise. Many considerations are open in making these choices.
Nevertheless, starting a franchise is always the safest and most successful choice. Franchising is a simple and efficient route to business ownership for people who are methodical, adept at following directions, and enjoy working within preexisting structures. Franchise ownership provides just the right balance of freedom and support.
Statement of purpose
Franchises allow company owners to be their own boss while benefiting from the name recognition and infrastructure already in place by the franchisor. One of the best ways to launch a company is through a franchise. One way to advance one’s professional standing is to launch a franchise.
Even if the job market weakens, young people will benefit greatly from owning a Franchise. For recent grads having trouble finding work, franchising can be a terrific solution. We will now examine several arguments favoring franchising as an investment strategy. A new business owner can learn the ropes of buying, running, and growing their enterprise in a relatively short time.
Entrepreneurs have the leeway to make important business decisions and get hands-on experience running a company. Franchises have an immediate advantage over new businesses because of the established name recognition they provide. In turn, this will raise product awareness and, ultimately, sales. When you invest in a franchise, you purchase a fully operational firm.
A franchise is a tried-and-true business model with a better-than-average chance of success. Franchisees like yourself follow the same basic framework for running the business. You learn not only how to perform your job duties but also about the company’s product line, marketing strategies, and dealing with employees. In a nutshell, you will receive constant encouragement and assistance in pursuing commercial success. Contact a franchise consulting firm like Franchise Bazar if an entrepreneur wants to learn more about franchise ownership prospects and is confident in her abilities.
Literature review
According to (Ziółkowska, 40), there are a few factors that will help an entrepreneur decide between a franchise and a startup business: –
Brand awareness: When it comes to a franchise, consumers are already familiar with the brand and its proposal, along with the fact that it comes with reliability and quality. This is not the case for a beginning business, which may not be able to acquire brand equity. One of the most significant benefits of purchasing a franchise is that it requires a lower initial time and financial investment than starting a business from scratch. Even if your company is completely new to the region, the established name recognition of the franchise brand can facilitate the initial word-of-mouth promotion, which is extremely important to the company’s success. Because of this, the likelihood of success will be considerably greater.
Control: In a startup business, at the early stages, the owner can put the systems and methods of management that he finds most effective and may even assume complete command of the company. In contrast, under a franchise model, the franchisor retains strategic oversight while franchisees are responsible for running day-to-day business operations. Franchise owners do not need to put as much time and effort into strategic planning as those starting a brand-new business.
Equipment and supplies: When it comes to a startup business, If you are starting a business from scratch, you will have to source your materials, ensure they are up to snuff and haggle for the best prices, but with a franchise, you will have to do nothing more than put up some capital.
Financing: In a startup business, Retail, space, marketing, and equipment require significant financial investments from the business owner. Franchises, on the other hand, have an advantage since franchisors are more likely to lend money to an already-established brand than to a startup.
Marketing: The franchisor’s marketing budget, which may be in the millions of dollars, can be used by franchisees to their advantage. A monthly cost could be associated with this, but it would be minimal compared to the possible payoff. More money will need to be spent on marketing and promotion for a startup, with no assurance of a return. Franchises benefit from both a well-known brand and a dedicated customer base. When people hear the name of a franchise, they automatically have more faith in it. The franchise will provide guidance and feedback as an entrepreneur develop and launch her successful marketing initiatives. Depending on their size and capabilities, they may also create a marketing plan to assist an entrepreneur in promoting the brand. This plan would include a market study, strategy, sales estimate, and budget.
Speed to market: The owner of a startup company has a lot riding on the accuracy of his or her estimates for supplies, equipment, and office space. If those estimates are inaccurate, the company will lose money and miss out on opportunities. Moreover, because a franchise is essentially a carbon copy of an existing firm, it takes much less time to get up and run than other types of businesses.
Faster ROI: Because a startup might take a while to establish a customer base and a name for itself in the market, the return on investment (ROI) for a franchise is typically much quicker. There will be failures when starting a business from scratch, and those failures will result in financial losses, time, energy, as well as frustration.
Franchisor’s support: Providing ongoing support to franchises is one-way franchisors try to guard their brand names. Franchisors also provide specialists to work in the field to help franchisees run their businesses and develop into capable leaders. Franchises carry a lower risk than new businesses because of this. A laundry list of permits and rules must be met before a business may open for business. When an entrepreneur launches a franchise, the franchisor will invest heavily in its success. The franchisor will assist an entrepreneur in overcoming these difficulties.
Several franchisors also give franchisees turnkey packages, including initial startup costs to ongoing support and maintenance. By investing in a franchise, startups can strike the perfect balance between complete autonomy and expert direction.
Peer support: The franchisee network can help a business owner learn about the industry and how to deal with problems. Franchises have a more robust peer-supportive relationship than new businesses.
Product/ service innovation: It takes a significant financial and time commitment to implement any corporate innovation. When a new company tries something out, it may not work out and cost them time and money, but franchisors keep on inventing on their dime and would then roll out the new product or service to their franchisees.
Site selection: Franchisors can lend a hand with site selection consultants and their extensive knowledge of the industry and assistance in establishing favorable lease terms with building owners. These elements work together to provide a solid basis for the franchise’s future success.
Scalability: The capacity to expand into other markets quickly is a major selling point for many franchises. With the help of a franchise system, a business owner can grow his company in whatever direction he sees fit.
Franchises are built on the premise that they can be replicated successfully, and as such, they are highly scalable in various ways. Many businesses succeed by beginning in one place and spreading out to others as demand grows.
Rather than starting from scratch, investing in an established brand is always preferable. Franchisees have a higher success rate as business owners than those who establish their own companies from scratch. It is not easy to launch a brand-new company from scratch. While there are numerous benefits to investing in franchises, there are also many obligations that come with starting a new business.
When an entrepreneur buys into a franchise, you are banking on a proven business plan that has been fine-tuned to eliminate shortcomings and capitalize on strengths. Investing in a successful franchise means accessing established marketing and advertising channels. You can always rely on the support of your franchisor when you launch a franchise. Entrepreneurs can set their hours and be responsible for their success in a franchise. Some franchise companies even offer in-depth training programs to assist you in getting your firm off the ground and learning everything there is to know about your chosen field.
In most cases, franchisees save money because the main firm negotiates better supplier deals. As a result, franchises can save money on inventory and supplies compared to independently owned businesses. There are many dangers you have to face when you start a business. Franchisors are available to assist franchisees with any operational difficulties that may arise. As a bonus, many courses also have materials that can aid business owners in their day-to-day operations, such as a study of store operations, sales, and financial management.
Buying a franchise for a successful company is one of the best investments you can make today. Compared to the failure rate of new businesses generally, franchisees have an exceptionally low rate of occurrence. It paves the way for would-be business owners to get their feet wet without taking on the full dangers of a startup. It is easier to get a loan, and a support structure is already in place, just to name a few of the many benefits of buying a franchise. Unlike starting a business from scratch, investing in a franchise allows you to capitalize on a tried-and-true business model complete with a track record of success, a tried-and-true training program, a reliable supply chain, and professional technical support. Franchises already established as successful tend to have even lower failure rates. Franchises also provide for an uncomplicated and orderly departure. When the time comes for the owner to retire, they can sell their successful business to someone else. Franchises attract investors because they offer a proven, lucrative business model. It provides business owners with a tried-and-true blueprint for maximizing profits.
Why you should buy a franchise instead of opening up your own business
It is exciting to launch a new company, but it is not a walk in the park. It requires effort, focus, drive, and determination. There are several advantages to investing in a franchise that make it the superior choice for prospective business owners.
When venturing out on your own, there are many challenges to face, but when you invest in a franchise, you have a support system to help you through them. Having an established business model to fall back on is only one way a franchise system reduces risk. When you buy into a franchise, you get all the benefits of business ownership without taking on all the risk.
It is natural to be awed by the prospect of creating something new from nothing. This is because incorporating a business has many prerequisites. Suppose, instead, you decide to invest in an existing franchise. So, I imagine you are wondering what the procedure is for acquiring one. The primary function of a franchise is to promote and distribute the owner’s (the franchisor’s) goods and services via independent contractors (the franchisees) (franchisees). Buying a franchise has many benefits that a startup business owner might not have access to, including riding on a well-known brand name (Gans, 150).
Pros
Reduction of Risk
There is significantly greater safety in investing in a franchise than in launching a new firm. This is because franchises receive much help and backing from the government. Most businesses employ tried-and-true business models, having seen success in various regional marketplaces. Because of the franchise’s track record, financing the firm is much easier than for a startup.
The popularity of the Product and Devoted Clientele
As every entrepreneur will tell you, the hardest aspect of starting a business is attracting your first clients. It is the main incentive for people to invest in franchises. Many efforts that go into advertising and establishing a brand are avoided when franchising. A franchise investment provides entry to a proven market and a pool of qualified workers. In exchange, you have quick access to potential sources of income (Picken, 190).
Strength in Numbers
Investing in a franchise is the best way to reap the benefits of establishing connections with key suppliers. By purchasing into one, you can use the franchisor’s bulk purchasing power to save money on supplies.
Strong Support from the Franchisers
As a franchisee, you can count on one thing: the franchisor’s help. You will receive help with operations before opening, including the ground-breaking program, construction, and design. Other franchises also provide access to loans and other sorts of financial aid.
Cons
Initial Expenditure May Be Considerably Large
Certainly, it is true that the preliminary expenditure on a franchise, especially one associated with a well-known brand, can be quite high. The franchise you choose to invest in will determine the cost, although plenty of low-priced options exist. Learn about the various franchises’ monthly royalty fees. Typically, the percentage of gross sales revenue that goes toward the loyalty fee is between 4% and 6%. However, please understand that not all franchises need a monthly royalty payment.
Limited Creativity
When you buy into a franchise, you commit to working with a specific brand, constraining your innovation ability. Know that there are rules and regulations to follow if you decide to buy a franchise.
Sharing of Financial Information with Corporate
In order to improve their business model and ensure that royalties are being paid correctly, the franchisor often requests financial information from their franchisees. As a direct result of this, the franchisees will have less privacy concerning their financial dealings as a result of this. Franchises that are doing well typically provide their franchisees with access to their financial information. After that, the franchisees can compare their performance to the rest of the system (Gans, 150).
There is value in putting money into any venture, but you should not jump in without first conducting an analysis. Entrepreneurs interested in purchasing a franchise must have a solid understanding of how the purchase process works. Examining the benefits and drawbacks of purchasing a franchise is the way to move in the right direction.
The following are compelling arguments supporting the idea that you should consider purchasing a franchise.
When business owners invest in a franchise, they gain access to a proven business framework. This removes the burden of developing, implementing, and managing a business model. After getting off the ground, you will be handed one that someone else created. Resources such as training programs and support staff
are always available to help you learn the business model.
Buying a franchise means investing in a tried-and-true business model if you are an entrepreneur. This is helpful for any entrepreneur. You need not initiate something from scratch. The franchise you are considering investing in already has established name recognition, customer loyalty, and consumer familiarity. The reliability and longevity of the brand you invest in make it worthwhile.
When you buy a franchise, the franchisor will give you the training and resources to run your business successfully. Due to the presence of a dedicated team of marketing and graphic design professionals, you can count on consistent help and support. The main benefit of franchising is that it allows a group of people to work with you instead of just yourself. You will be led smoothly and efficiently through the steps of training programs, training personnel, and development managers.
When a business owner invests in a franchise, they join a larger group of people engaged in the same line of work. An entrepreneur gains motivation, drive, and invaluable knowledge from this crew. A good franchise will have a tried-and-true formula and comprehensive training. The best franchises have open lines of communication between their franchisees, allowing them to share ideas and offer support to one another. You have made a new friend and coworker out of a former rival.
Experience is not a deal breaker for would-be franchise owners without prior business. You do not have time to second-guess your decision to become a business owner if you lack business acumen or prior experience in this field. That is why franchises exist: to participate, you need no prior knowledge of business management.
Why you should open up your own business instead of buying a franchise
There is less leeway for franchises. When you are the boss, you can decide everything, from hiring to marketing. This independence lets you realize your vision but also comes with some serious pressure. Franchises typically offer less leeway but more backup for their business owners.
Pros
Gaining Happiness and Self-Development
The pride an entrepreneur feels after seeing their startup succeed immensely. Some people enter the business world to fulfill a lifelong ambition. As a result, people can broaden their horizons and acquire transferable skills in business and leadership, contributing to their ongoing development, sense of accomplishment, and contentment.
Gains monetarily
The potential for greater financial rewards is a major draw for business ownership. Those who take the plunge to start their businesses may be rewarded handsomely for their bravery. A tax preparer who earns $15 per hour knows that his company’s clients pay several hundred dollars for his services. When a worker’s worth exceeds what he is being paid, it makes financial sense for him to go into business for himself.
Cons
Financial Risk
The potential for financial loss is a major threat to business owners. Monthly commitments and upfront costs for materials and setting up the shop exist. The price tag will change based on the nature and size of the company. Many entrepreneurs borrow money to get their businesses off the ground, putting them in the position of having to pay off debt while simultaneously trying to make a profit.
Health Problems and Stress
Stress and physical problems are common among business owners. Due to the lack of a guaranteed income, business owners are under constant pressure to increase sales and revenue. The monthly income of owners tends to fluctuate widely, and they may be more likely to rack up debt. When a company grows to the point where it must pay employees and cover larger monthly expenses, the pressure on its owner to succeed increases along with it.
Commitment of Time
It takes a significant time investment to launch a business. In order to guarantee the success of a business, it is common practice for its owners to forego the freedom of working on their own time and maintaining their way of life.
Conclusion
Franchising, at its best, allows investors to capitalize on a tried-and-true business model complete with established procedures, a trained workforce, a stable supply chain, and knowledgeable technical support staff. The chances of failure for some of the most well-known franchises are extremely low, hovering around the low single digits. When an entrepreneur invests in a franchise, he/she gains access to a fully operational business just waiting for an entrepreneur to take charge. Franchising is a straightforward route for business owners if an entrepreneur has an eye for detail, can follow instructions, and prefer to work within preexisting structures. So, rather than risk everything on an unproven startup idea, I believe investing in an established franchise is wiser for an entrepreneur.
Works Cited
Blank, Steve, and Bob Dorf. The startup owner’s manual: The step-by-step guide for building a great company. John Wiley & Sons, 2020.
Gans, Joshua S., Scott Stern, and Jane Wu. “Foundations of entrepreneurial strategy.” Strategic Management Journal 40.5 (2019): 736–756.
Picken, Joseph C. “From startup to scalable enterprise: Laying the foundation.” Business Horizons 60.5 (2017): 587–595.
Tukker, Arnold, and Ursula Tischner, eds. New business for old Europe: product-service development, competitiveness, and sustainability. Rouujinktledge, 2017.
Ziółkowska, Marta. “Success factors and benefits of social franchising as a form of entrepreneurship.” Studia i Materiały 1/2017 (23) (2017): 37-47.
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